The economists of the Bank of America are nixing their concerns about a housing crash like the very same one that was experienced back in 2008. Instead, they are saying the market is more reminiscent of what happened four decades ago.

Unlike in 2008, there is no evidence of overdevelopment either from the builders or the over-leveraging caused by owners and homebuyers. The housing market currently is vastly dealing with the fallout from the stern monetary policy, which is pretty similar to 1980.

There are some major differences; however, the main point from the Bank of America is that there is still a rough road that lies ahead of housing.

“Looking back at previous housing recessions, we think the 1980s are a better analogy for today’s market than the 2008 housing crash,”

Michael Gaoen and Jeseo Park, Bank of America Securities’ economists, wrote in their note. Still,

“with rates likely staying higher for longer, we are cautious of potential turbulence ahead.”

In the years prior to 2008, the builders were on a binge of building, which led to “excess development,” they mentioned.

While homebuilding has increased over the previous year, it is still lagging by far compared to the pace developers picked up from 2000 to 2006.

“Household mortgage debt was 65% of disposable income in 2Q 23, compared to a peak of 100% at the start of the financial crisis,”

the economists wrote.

“The ratio of mortgage debt to real estate assets (i.e., loan-to-value) was 27% in 2Q 23, significantly lower than 2010.”

However, the economists debate that the housing market looks familiar to the early 1980s in many key ways. Back then, inflation was also pretty high. To combat the increasing prices, the Federal Reverse had increased rates of interest, which in turn doubled the mortgage rates from 9% to 18% by 1981, which hurt the housing market just when baby boomers entered the prime years of home buying.

Familiar, isn’t it?

In June 2022, when inflation has its peak in four decades while at the same time, the Fed increases the interest rates.

“We remain cautious of potential turbulence ahead,”

researchers have added.

“Until then, hang tight, It may be a bumpy ride.”

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Upasana is a budding journalist who has a keen interest in writing. She considers writing as therapeutic and is most confident when she writes. She is passionate about music, movies and fashion. She writes in a way that connects with the audience in a personal level. She is optimistic, fun loving and opinionated.

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